Letter to a Lawyer

Dear Attorney,

Good day! I hope this letter finds you well. I am reaching out to seek clarification on a concern regarding the employment status known as "floating status." Specifically, I would like to understand whether an employer is obligated to pay the employee during the one-month period when the employee is placed on floating status.

This matter has caused some confusion, and I would appreciate your legal insight into whether the company’s action of not paying the employee during this time is compliant with Philippine labor laws. I would also like to know the rights and remedies available to employees in such situations.

Thank you for your guidance, and I look forward to your response.

Sincerely,
A Concerned Employee

A Comprehensive Discussion on Floating Status in the Philippines

In the Philippine labor context, "floating status" refers to a temporary suspension of an employee's work duties without severance from employment. This situation typically arises in industries where work availability fluctuates due to operational needs, such as in security services, retail, manufacturing, and certain contractual arrangements.

The legal framework governing floating status is rooted in provisions of the Labor Code of the Philippines and jurisprudence interpreting these provisions. Below, we provide a detailed analysis of the key issues, including employer obligations and employee rights.

1. Definition and Legal Basis for Floating Status

Under Article 301 of the Labor Code (formerly Article 286), an employer may place an employee on floating status if there is a bona fide suspension of operations or lack of work due to economic, operational, or other legitimate reasons. This suspension must not exceed six months, beyond which the employment relationship may be deemed constructively terminated.

Key Characteristics:

The employee remains employed but is temporarily relieved of work duties.
There is no requirement for the employer to pay wages during the suspension period, as the no-work-no-pay principle generally applies.
Benefits such as SSS, PhilHealth, and Pag-IBIG contributions should continue unless expressly suspended.

Jurisprudence:

The Supreme Court of the Philippines has upheld this principle in cases such as Hinatuan Mining Corp. v. NLRC and Do-All Metals Industries, Inc. v. CA, provided that the suspension is grounded in legitimate business circumstances.

2. Obligation to Pay Wages

A primary concern is whether the employer must pay wages during the floating status period.

General Rule: No Work, No Pay

Under the no-work-no-pay principle, codified in labor laws and consistently upheld by the Supreme Court, an employee is not entitled to wages if no work is performed. This principle applies unless:

There is an express agreement providing for payment during floating status.
The employer's actions constitute constructive dismissal.

Exception: Contractual or Company Policies

Some employment contracts or collective bargaining agreements (CBAs) may stipulate payment during periods of suspension or floating status. Absent such provisions, payment is not mandatory.

Example:

In the case of PAL v. National Labor Relations Commission (1993), the Court recognized the validity of placing employees on floating status for legitimate business reasons, without requiring the employer to pay wages during the suspension.

3. Limitations on Floating Status

The law imposes strict limitations to prevent abuse of floating status:

A. Timeframe

Floating status must not exceed six months. Beyond this period, the employee is considered constructively dismissed and entitled to separation pay or reinstatement.

Case Reference: In Holiday Inn Manila v. NLRC, the Court ruled that exceeding the six-month period constituted a breach of labor rights, justifying the employee's claim for separation benefits.

B. Legitimate Business Justification

The suspension must be based on genuine operational requirements, such as:

Temporary closure due to natural disasters or economic downturns.
Reduction in client demand in service-oriented industries.
Compliance with government-mandated closures (e.g., during the pandemic).

Employers bear the burden of proof to show that the suspension is necessary and not a pretext for avoiding legal obligations.

C. Notice to Employees

Under the Labor Code, employers are required to provide notice to affected employees and the Department of Labor and Employment (DOLE) regarding the temporary suspension of work.

4. Employee Remedies

If an employee believes their rights have been violated during floating status, several remedies are available:

A. Filing a Complaint for Constructive Dismissal

If the floating status exceeds six months or is implemented without valid justification, the employee may file a complaint with the National Labor Relations Commission (NLRC) alleging constructive dismissal.

B. Claiming Separation Pay

Employees who are effectively terminated due to prolonged suspension or company closure may be entitled to separation pay. The rate depends on the cause of termination:

One month’s salary or one-half month’s salary per year of service, whichever is higher.

C. Request for Mediation or Arbitration

DOLE offers mediation and conciliation services to resolve disputes amicably without the need for formal litigation.

D. Restitution of Benefits

If benefits such as contributions to SSS, PhilHealth, or Pag-IBIG are withheld during the suspension, employees may demand their restitution.

5. Employer Best Practices

To avoid legal disputes and ensure compliance, employers should:

Clearly communicate the reasons for and duration of floating status to employees.
Observe the six-month maximum period strictly.
Provide necessary documentation to DOLE and affected employees.
Offer assistance, such as job reassignments or partial payments, when possible.

6. Special Considerations During COVID-19

The COVID-19 pandemic introduced unique challenges to labor relations. DOLE issued guidelines under Labor Advisory No. 17-2020, allowing employers to adopt flexible arrangements, including temporary suspension, subject to stricter oversight.

Employers were encouraged to balance operational needs with employee welfare by providing financial aid, benefits, or partial pay where feasible. Violations of these guidelines may result in penalties or adverse findings during labor inspections.

7. Conclusion

Floating status is a legally recognized mechanism to address temporary disruptions in business operations. While employers are not generally obligated to pay wages during this period, they must adhere to strict procedural and substantive requirements to ensure the arrangement is lawful. Employees, on the other hand, have recourse through legal channels if their rights are violated.

For a specific case, affected employees or employers are strongly advised to seek professional legal counsel to navigate the complexities of labor law and tailor solutions to their unique circumstances.